Euroland sovereign debt

The ongoing shambles of Euroland
The ongoing shambles of Euroland

The ongoing shambles of Euroland sovereign debt and politics has festered for another month with no fresh sign of resolution. In Britain David Cameron and his cabinet colleagues have taken it in turn to make embarrassing revelations to the Levy inquiry, unsupported by their LibDem coalition colleagues. Little kudos has accrued to either side, as reflected by the lack of change in sterling’s value against the euro. The last month has seen the pound wander back and forth across a two-and-a-half-cent range that has led nowhere. The euro is very slightly weaker than it was before the first abortive Greek election six weeks ago but the difference is minimal.

At the beginning of June the Bank of England’s Monetary Policy Committee decided to keep the Bank Rate steady at 0.5% and to refrain from any new quantitative easing – “printing money” as the tabloids would put it. The minutes of the meeting, published a fortnight later, showed how close a call it was. Four of the nine members – including the governor himself – wanted to increase the asset purchase programme beyond the 325 billion of government bonds already in the scheme.

Investors were surprised by the narrow majority and concluded that it might be no more than a couple of weeks before the Bank rolls out the next phase of its monetary stimulus. That anticipation was reinforced by data the previous day showing that UK inflation had fallen back into its 1%-3% target range in May. It was the first time in two and a half years that consumer prices index inflation had been below 3%. It is possible that the Bank of England governor had such numbers in mind the previous week when he announced, together with the chancellor, a new scheme to feed low-cost money to the country’s banks, conditional on them making cheap loans to individuals and small businesses.

The central banks of Spain and Italy are green with envy at the low borrowing costs enjoyed by Germany and Britain. For its five-year loans Britain pays roughly 0.7% and Germany pays 0.6%. Investors charge Italy 5.5% and Spain 6.4% for the same privilege. Proportionally the difference is enormous and it exists because lenders fear Spain and Italy could go the same way as Greece, defaulting on their obligations and leaving private sector investors in the lurch.

The EU is trying to dispel this fear and, by doing so, to make it more affordable for Spain and Italy to borrow the money they need. But so far they are fighting a losing battle. Brussels’ approval of a €100bn bailout for Spain in mid-June simply drew attention to the country’s troubled banks and raised the question of how much more support it might need further down the line.

In Greece the New Democracy party has managed to form a three-way coalition after the second general election in six weeks but the new government is almost certain to approach Brussels – and Berlin – with a request for an easing of the onerous austerity imposed as a condition of its financial bailout.

At the G20 conference in Mexico there were heartening rumours that Germany would subscribe to a €600bn (or €750bn, depending on the source) support fund for Spanish and Italian government bonds. Much as investors liked the concept, they have yet to hear any confirmation from the most important player; Chancellor Merkel.

So investors don’t like the eternal disarray in Euroland and the recycling of old pledges and reassurances. Equally importantly, they are nervous about the prospect of a further dilution of Britain’s currency and the close relationship of the UK and Euroland economies.

Paradoxically, the failed Greek election in early May marked the end of sterling’s ten-month rally. Since then it has made zero forward progress against the euro. Without some new and major development – on either side – the impasse is likely to continue.

Moneycorp

Moneycorp – costadelsol@moneycorp.com or telephone +34 951 319 700

Bank recapitalisation agreed

Mr Rompuy said the deal was a "breakthrough"
Mr Rompuy said the deal was a “breakthrough”

Spain has received a lifeline from Europe as the direct recapitalisation of it’s banking sector was approved in the final hours of a long summit in Brussels.

German Chancellor Angela Merkel appeared to yield on tough reforms in exchange for rescue money after saying earlier that her country would not put up any more cash.

The European Council president, Herman Van Rompuy, said the decision was a “breakthrough that banks can be recapitalised directly”.

Spain had requested that any bailout be directed to the banks as it did not want to increase the government debt, and this decision appears to be exactly what they wanted.

The new agreement makes it clear that the EU’s existing bailout fund will put up the money until the new fund, the European Stabilisation Mechanism (ESM), becomes operational.

Eurozone leaders agreed to begin implementing the rescue plan by 9 July but warned that it could be the end of the year before the money become available.

Spanish newspaper El Pais reported that Mariano Rajoy didn’t want to comment on the agreement when he left but he was visibly satisfied. Italian PM Mario Monti recognised that the discussion had been “hard and full of moments of tension”, but that it had been worth it also adding that Italy did not intend to apply for a bailout.

German chancellor, Angela Merkel, said she was “very satisfied that we took good decisions on growth”.

The 17 leaders of the eurozone also agreed to a joint banking supervisory body and the full 27-member European Union agreed to a general long-term plan for tighter budgetary regulations and political union.

Gibraltar and Spain warned over fishing dispute

Spain and Gibraltar must "work together"
Spain and Gibraltar must “work together”

Following increasing tensions between Spanish and Gibraltarian fisherman Europe has warned both country’s to work together to protect the Site of Specific Cultural Interest (SCI) which runs alongside the rock.

Environment commissioner Janez Potocnik says that both country’s have legal obligations to protect the area and they should work together on protecting it from damage and spend less time arguing about who’s water it is.

However, Gibraltar’s response is that Spain has no say in the matter as the area is within British waters and it has full backing from the UK who refuse to recognise the ‘Spanish designations within British waters’ even though the EC approved the site in 2008.

“The response from the EU Commission is erroneously based on the false premise that the waters around Gibraltar are anything other than exclusively British,” a spokesman for the Gibraltar government said.

A UK foreign office spokesman added: “Neither Spain nor the Commission alerted the UK to the Spanish SCI proposal. The UK does not recognise the Spanish SCI listing and is challenging the listing in the European courts.”

The EU have become embroiled in Gibraltar-gate after Gibraltar MEP Sir Graham Watson asked the commission about Spain’s failure to notify the UK about the filing of its designation.

The tension between Spain and Gibraltar has been escalated further after numerous conflicts between Spanish and Gibraltarian police, anger from Spain over Prince Edwards visit, and the provocative visit from King Juan Carlos who met with Spanish fisherman while visiting Algeciras.

There were also minor clashes during the Diamond Jubilee celebrations when provocative gestures from a small group of Spaniards prompted an angry crowd to gather around them. They were subsequently escorted over the border by police “for their own protection” after one of them kissed the badge on his Spanish football shirt during the playing of the British National Anthem. A police spokesman compared the provocation to ‘going round Tel Aviv celebrating Hitler.’

Pensions in Andalucía fourth lowest in Spain

Southern Spain may be a great place to live for most people but not so for old age pensioners as residents in Andalucía receive lower pension payments than in all but three of Spain’s regions.

The average pension in Andalucía was €757.31 in June which is €72.26 below the national average of €829.57.

The regions that beat Andalucía to the bottom of the list are Murcia, Extremadura and Galicia where the average pension is €730.50, €704.31 and €696.14 respectively.

Only seven regions have higher than average pensions. They were The Basque Country with an average of €1,024.74, Asturias where pensions average €984.78, and Madrid with €981.51.

The total paid for pensions in June across Spain was 7.38 billion euros, representing an increase of 4.3% compared to the same period in 2011, according to data from the Social Security and Employment ministry.

Buying Property In Spain: Seven Common Problems To Watch Out For

spain-house-for-saleWhen contemplating a purchase in Spain, you really should automatically take the same or even more precautions that you would when buying a property in your home country. A common sense approach is necessary every time. Unfortunately, this doesn’t always happen and buyers can get carried away by the dream of owning a place in the sun, especially when prices are as comparatively attractive as they are now.

Below we have highlighted seven common problems identified by our surveyors. Add these to your mental checklist when looking at properties to buy in Spain:

Damp – the most common defect we find

There are two sorts to look out for: firstly, rising damp or patches of dampness coming through walls common in properties which have been built against rock or earth; secondly, damp descending from ceilings or terraces above. Both are principally due to improper or no application of damp proofing at the time of construction. Removal of planted troughs and installing gutters and downpipes, would cure many of these problems.

Climate

Don’t forget that for around eight months the year, most of Spain has a temperate climate with wind, rain and chill, especially in mountainous areas. It’s easy to concentrate on how to deal with the heat of summer and completely forget to cater for the winter season. If you are planning on spending the winter here, you’ll need heating of some kind as you’ll be used to having it at home.

Required Documentation

Insist that your lawyer obtains written proof that planning and/or other permissions and/or title registration for the initial construction or alterations have been obtained. Watch out in particular for properties encroaching on restricted areas affected by the Coastal Law or Ley de Costas. Just because the property pays taxes or has a registered title, doesn’t mean that all the permissions are in place.

Utility Connections

Inadequate, ineffective, illegal and/or absent electricity, water and drainage connections can be a problem, especially with rural or country dwellings. They can also be a good indication that a property does not have its first occupation licence.

Personal Responsibility

When buying a property abroad, it’s important to keep your head and not believe all you are told without making your own simple checks. Insist on being provided with copies of all the documents as that will concentrate your adviser’s mind. ‘Misrepresentation’ and buying ‘in good faith’ are often euphemisms for buyers not accepting personal responsibility for their own imprudence. Buyer beware!

Professional Conduct

It can be argued that there is an absence of ‘professional conscience’ among some Spanish lawyers who shrug their shoulders when asked: “Why didn’t you tell me?” They may reply: “You didn’t ask,” even when it was obvious that the client didn’t know what to ask. There are many good, reliable and responsible lawyers out there so do not use the same lawyer as the seller on any occasion. Suing a lawyer for negligence or even fraud is not easy anywhere.

Mortgages

Some Spanish property buyers fail to realise that a mortgage is a personal loan, which will have to be repaid in its entirety. If the property used as security can only be sold at a price inferior to the value of the loan, the individual will be liable for the balance. Spanish banks can and do chase debts to other countries and arrest assets and even earnings there. When a bank awards a 100% mortgage over a property it is selling, be warned. If you have to sell again you will not be able to offer that to a buyer and you may be competing with the banks selling other neighbouring property. This is probably not the bargain it initially appears, but instead may be an amoral offer for you to acquire a liability for instant negative equity even if just the selling costs are taken into account.

by Campbell D. Ferguson

About the Author

Campbell D. Ferguson, FRICS, has been advising buyers on what’s real and what’s not for more than ten years on the Costa del Sol and for 40 years throughout the UK and Europe. Find out more at Survey Spain Network.

Germany dismisses Spain’s pleas for help

Merkel saying no to more cash
Merkel saying no to more cash

German Chancellor Angela Merkel has angrily dismissed pleas from Italy and Spain for financial aid as a rift develops that could shatter attempts to find a fix for the crisis at a meeting of EU leaders today.

Ms. Merkel was in Paris last night for emergency talks with French president Francios Hollande but before she left Germany she told her MP’s at the Bundestag, the lower house of parliament in Berlin, that instead of continuing to provide cash bailouts for the Eurozone more effort was needed to step up debt reduction and economic reforms.

“I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures,” she said.

Spanish Prime Minister Mariano Rajoy said he would ask other EU leaders to allow euro bailout funds or the European Central Bank to stabilise financial markets by assisting in the reduction of borrowing costs, which are currently running at nearly 7% for Spain.

“We can’t keep funding ourselves for a long time at the prices we’re currently funding ourselves,” Rajoy said. “There are institutions and also financial entities that cannot access the markets. It is happening in Spain, it is happening in Italy and it is happening in other countries.”

Spain’s central bank said the recession is likely to deepen in the second quarter of this year while official figures show the government’s deficit had reached 3.41% of GDP in the first five months of the year, already approaching the 3.5 % target for the year.

Mortgage rates increase

IMS - International Mortgage SolutionsHaving written last week that despite the Bank bailout request from Spanish Government, and continuing lack of access to money markets for all Spanish Banks that we had not seen any price increases, this week most Banks announced just that.

Sol Bank has added a further 0.90% to their margin and have implemented a high first year premium rate of 4.85%. O the positive side they have maintained their 70% product.

Deutsche Bank has announced there will be pricing increases which will be implemented from the 31st of July but the details have not yet been issued.

A number of Banks have indicated they are also reviewing their pricing after this week’s downgrade of 28 entities by Moody’s and we expect these to start being implemented shortly.

Whilst the issues in Spain are well reported,  in general across Europe, including the UK, it is widely reported that mortgage rates will rise as all Banks are suffering from a higher cost of funding which eventually has to be passed onto the consumer.

Spain’s rates rises are unlikely to be the increases new borrowers will feel the impact of in July.

International Mortgage Solutions
www.international-mortgages.org

Tax increases being discussed

Deputy Budget Minister Marta Fernandez Curras
Deputy Budget Minister Marta Fernandez Curras

As the Spanish government continue to struggle with their public debt discussions over possible tax increases are now taking place.

Despite election promises the government are considering scrapping the home-owner rebate introduced by Rajoy’s government only six months ago following an election campaign pledge.

“Is the government considering scrapping the tax rebate for mortgage holders? Yes,” Deputy Budget Minister Marta Fernandez Curras said to reporters in Madrid yesterday.

“It’s not the first time it’s been done and it can be studied, it is a recommendation of the European Union and it is a traditional recommendation of the International Monetary Fund for this country.”

Curras also added that the government are discussing the possible introduction of an environmental levy and although sales tax is likely to increase she didn’t know when or by how much.

As the government battles with it’s deficit and pressure from Europe they have already backtracked on two election promises; they cut firing costs and raised income tax. Now the pledge to restore the home-owner rebate scrapped by Zapatero’s government is in danger too. Another election pledge they have enacted was to increase pensions – so far there is no mention of a u-turn on that one.

Despite the country’s budget deficit increasing during the first quarter of this year Curras is confident that the government will meet it’s target for 2012.

“The deficit has started on a downward path and we expect that to intensify,” Curras said. “We are determined to meet the budget target.”

San Pedro tunnel is OPEN!

Finally open!
Finally open!

So, it actually happened! Maybe not exactly as planned but it happened.

The new tunnel section of the A7 running under San Pedro de Alcantara is open to the public.

Although a little bit late, Minister of Public Works and Transport Ana María Pastor Julián appeared with Marbella Mayoress Ángeles Muñoz to officially open the tunnel. This morning there was a steady stream of motorists shaving 10 minutes of their journey time!

A small group of protesters turned out to demand a cycle lane either through the tunnel or above ground through the town following the tragic death of a cyclist on the A7 a few weeks ago. There was no trouble due to a rather over-the-top police presence.

Hopefully many of the businesses that have struggled since construction began can start to claw back the clientèle they lost due to lack of access. Many business owners I spoke to in Guadalmina and San Pedro said they lost up to half of their business when the road through San Pedro was closed. Many of the businesses along the main road closed their doors for good – of course some will say the economic crisis was the cause, others will argue that the road closure essentially blocked access to their business.

More downgrades for Spanish banks

Further downgrades for Spanish banks
Further downgrades for Spanish banks

Following Spain’s formal request for assistance Moody’s have downgraded the credit rating on 28 Spanish banks.

Moody’s summarise the downgrades in a press release as follows:

Moody’s Investors Service has today downgraded by one to four notches the long-term debt and deposit ratings for 28 Spanish banks and two issuer ratings.

Today’s actions follow the weakening of the Spanish government’s creditworthiness, as captured by Moody’s downgrade of Spain’s government bond ratings to Baa3 from A3 on 13 June 2012, and the initiation of a review for further downgrade. For more details on the rationale for the sovereign downgrade, please refer to the press release (http://www.moodys.com/research/Moodys-downgrades-Spains-government-bond-rating-to-Baa3-from-A3–PR_248236).

Moody’s adds that today’s downgrades of the long-term debt and deposit ratings also reflect the lowering of most of these banks’ standalone credit assessments.

The debt and deposit ratings declined by one notch for three banks, by two notches for 11 banks, by three notches for ten banks and by four notches for six banks. The short-term ratings for 19 banks have also been downgraded between one and two notches, triggered by the long-term ratings changes.

Today’s actions reflect, to various degrees across these banks, two main drivers:

(i) Moody’s assessment of the reduced creditworthiness of the Spanish sovereign, which not only affects the government’s ability to support the banks, but also weighs on banks’ standalone credit profiles, and

(ii) Moody’s expectation that the banks’ exposures to commercial real estate (CRE) will likely cause higher losses, which might increase the likelihood that these banks will require external support.

This notwithstanding, Moody’s views positively the broad based support measures being introduced by the Spanish government to support the Spanish banking system as a whole. Moody’s will assess the impact of the upcoming recapitalization on banks’ creditworthiness and bondholders once the final amount, timing and form of funds flowing to each individual bank are known.

The ratings of both Banco Santander and Santander Consumer Finance are one notch higher than the sovereign’s rating, due to the high degree of geographical diversification of their balance sheet and income sources, and a manageable level of direct exposure to Spanish sovereign debt relative to their Tier 1 capital, including under stress scenarios. All the rest of the affected banks’ standalone ratings are now at or below Spain’s Baa3 rating.

In addition, Moody’s has also downgraded (i) the ratings for senior subordinated debt and hybrid instruments of affected entities; (ii) all rated government-backed debt issuances from Spanish banks; and (iii) the long-term debt ratings of Instituto de Credito Oficial (ICO), which are based on an unconditional and irrevocable guarantee from the Spanish Government.

Please click this link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_143393 for the list of Affected Credit Ratings. This list is an integral part of this press release and identifies each affected issuer.

You can see the full press release here: Moody’s downgrades Spanish banks